08/18 - Weekly Roundup
Five stories about the economy. Four have to do with fast food.
“Chipotle and Shake Shack Help Solve an Economic Puzzle.” - Bloomberg is calling it a Slopcession. Personally, I think that “bowl-food-index,” is less nauseating. These restaurants are concentrated across the country in blue cities where consumer sentiment has “never been lower.” As a job seeker in one of four cities where job creation is low (60,000 so far this year compared to 160,000 this time last year), I understand the hesitancy to spend $17 on Sweetgreen.
“Sweetgreen shares drop 23% after salad chain cuts outlook for the second time in two quarters.” - Of the companies in the “bowl-food-index,” Sweetgreen’s stock is faring the worst. Year to date, the share price is down over 60%. The company seems to be factoring into its poor performance both the macro concerns outlined above and Sweetgreen specific issues. The overhaul of the loyalty program and smaller portion sizes seem to have contributed to a decrease in same-store visits.
“The Chili’s Economy Is Here: What’s Behind the Casual-Dining Boom.” - The “bifurcated consumer environment,” is positively affecting fast-food restaurants sitting in the middle. Year-to-date, Chili’s stock is up over 100% and Cheesecake Factory/Darden Restaurants (Olive Garden) is also generating positive returns. Unlike other types of sit-down restaurants (which might not do as well in an economic downturn) Chili’s has control over their pricing. Consumers are turning to these restaurants because they are places to treat yourself without breaking the bank.
“McDonald’s to Cut Combo-Meal Prices After Convincing Franchisees.” - The “bifurcated consumer environment,” was a quote from a McDonalds earnings call. McDonalds, at the lower end of the fast-food spectrum, is responding to the current economic conditions by lowering their prices. The new changes will make prices on the combo meals cheaper than individual items. McDonalds said they would support their franchisees who lose money due to these changes.
“A New Generation of ‘Buy the Dip’ Investors Is Propping Up the Market.” - Individual investors seem unfazed by volatility: the market saw record inflows after Liberation Day. Compared to 2008, when investors took out over $50 billion from the market, this could signal a new attitude in investing. Stocks are the highest percentage (36%) of household financial assets since this type of data started being collected. Robinhood and other fintech platforms have made it easier for individuals to participate in the options market, which is 20% of trading activity.